DSV + CH Robinson – thinking out loud
Find a flaw, if you can
Canadian National Railway (CN) is poised to break last year’s record investment with a larger splurge on its network, equipment and technology this year.
The rail giant also has lofty ambitions, involving the port of Halifax, to replicate the blockbuster growth of Prince Rupert.
A major focus of CN’s strategy is expanding its intermodal business, underlined in October when it acquired transport operator TransX.
Two months later, CN moved in for another acquisition: with an unidentified partner it put in a preliminary offer to buy the largest container terminal in eastern Canada, the 30ha Halterm facility at the port of Halifax.
Citing due diligence, management has not unveiled any details of the offer.
If the bid is successful, CN intends to expand the terminal’s capacity so it can handle two large vessels as well as trains with a minimum length of 3,700 metres, said chief executive Jean-Jacques Ruest.
The bid for the container facility is driven by a bold vision for Halifax, he said. Mr Ruest and his team view Canada’s fourth largest port as a possible “Prince Rupert of the east”, with the potential to emulate the rapid growth that Canada’s west coast container port has achieved since its Fairview container terminal opened in 2008. Last year it passed the 1m teu mark.
During an investor call following CN’s 2018 financial results, Keith Reardon, senior VP of consumer product supply chain growth, said CN’s top brass felt Halifax had “the exact same attributes”.
Their vision is based on increased volumes of container traffic from Asia reaching North America via the Suez Canal. As manufacturing increasingly shifts from China to South-east Asia that route will grow in importance, CN management argue.
As the sole major rail operator serving Halifax, this development would be a huge catalyst for CN’s intermodal traffic.
In the event that CN is rebuffed in Halifax, Ruest and his team have two other ports in their sights: one in Nova Scotia and one on the St Lawrence river.
The immediate future is unlikely to produce the type of growth Prince Rupert has enjoyed, but it is still bright. CN projects high single-digit volume growth this year in terms of revenue ton-miles.
As it reported its 2018 results this week, management announced its intention to continue its investment drive, with C$3.9bn (US$2.97bn) budgeted for this year. In 2018, the company spent C$3.5bn.
“In 2019, our record capital programme of C$3.9bn will be focused on investing in the renewal of a more efficient and reliable locomotive fleet, adding network capacity to accommodate our solid pipeline of growth in diverse markets and bringing technology to our precision scheduled railroading,” said Mr Ruest.
Last year CN poured over C$1.2bn into its infrastructure, partly to cope with problems that had surfaced in the early part of the year that saw capacity shortages to move grain and crude oil. To boost its rolling stock, the carrier ordered 350 boxcars, 350 lumber cars and 60 locomotives. Mr Ruest said CN would also acquire grain 100 hoppers over two years.
While the rail company has seen growth in its grain and oil volumes over the past year, there is still concern about rail problems. On 14 January the Canadian Transportation Agency announced an investigation into “possible freight rail issues in the Vancouver area”.
For 2018, CN reported revenues of C$14.32bn, up 10% on 2017, while operating income increased 5%. After some difficulties in the first quarter, momentum picked up. In the fourth quarter, revenues advanced 16% and operating income 19%, with the operating margin up 0.8 points to 38.1%.
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